History was created on Monday with the Sensex rising by more than 2,100 points, but the fact of the matter is that it was all gone in 60 seconds, when the markets were temporarily closed and then finally shut down – mutual funds did not even get to participate. It left a lot of eager beavers disappointed and they would have eyed the next day to wage their investing battle.
While the day saw everything, ups and downs supreme with the Sensex reaching an intra day high of 14,950 and an intra-day low of 13,834, a swing of almost 1,000 points, but after all the dust had settled for the day, all it had to show for its troubles was a minuscule gain of 17.40 points, closing at 14,302 points, a gain of 0.12 per cent.
The reason for that was not too hard to find. With most analysts saying there is unpredictability ahead and this rally may result in a sell-off soon, most investors looked to book profit at every peak they could take advantage of through the day.
At the end, there were circuits hits, all on the upper side by certain scrips that gained in excess of the daily quantity allowed. These are DLF Ltd (19.5%), Reliance Com (12.9%), SBI (12.7%), L&T (9.5%), M&M (9%), Grasim (8.7%), and ICICI Bank (8.6%).
On the NSE the S&P CNX Nifty too closed flat, shedding a mere 4.7 points, a fall of -0.11 per cent.
However, the morning and afternoon trade promised more, both in terms of losses and gains as markets rose and fell in turns as the trading day played itself out.
On expected lines, the first few minutes of trading on Tuesday indicated that stock markets were headed for another day of booking huge gains, even if they were not to hit the upper circuit. The gains were substantial enough post-opening-bell with Sensex jumping up by 473 points from its previous close on Monday.
But within minutes, the scene changed and the gains vanished.
Arguing from there, on Tuesday, Monday's wild ride seemed to have given most traders and investors the time to pause and reflect, to let reality to sink in and for the cautious approach to prevail.
The reverses happened in spite of the general expectations that markets were going to rise again, but the fact that many analysts had indicated this as an irrational and mostly exuberant release of energy that will lead to a sell-off pretty soon, seemed to have had some kind of an effect, profit-booking apart.
The plus-400-point gain on the Sensex turned to a 232-point loss, with the index falling to 14,052 points. Nifty lost 79 points to fall to 4,244 points.
Among the biggest losers at that point was Infosys (-7.34%), Jaiprakash Asso (-6.36%), Wipro (-5.82%), Hindalco (-5.32%) and TCS (-5.01%).
However, the so-called irrational exhuberance came alive within the hour and turned the situation around completely. Pulling off a U-turn, markets started acquiring positive momentum to cancel out all the day’s losses and move quickly into the gains territory. While Sensex moved to a 121-point gain to 14,405 points, Nifty gained by a more modest 10 points to 4,333 points. Fuelling the rise was the tremendous buying interest seen in certain scrips. Among the best of the gainers was, M&M (13.4%), L&T (10.42%), Maruti (10.03%), SBI (8.06%), and Sun Pharma (5.84%).
In a situation where markets are skyrocketing, it becomes increasingly difficult to be a bystander. However, in case you are looking to buy at even these high levels, exercise caution. If you are careful about what you buy and at what levels you give yourself exposure to, then this conservative approach can be helpful -- just think of the people who bought in at a time when the Sensex was trading at 20,000-plus points. However, trying to gauge the peak or the trough of a particular market rally ought to be no one’s game.
According to analysts, economic fundamentals cannot change overnight. Expecting market and economic reforms to start taking effect, after they have been cleared by the government will take time and during the interregnum, a whole host of other issues may intervene -- positive or negative, over which no one has any control. Therefore, exhibiting signs of too much optimism could be counterproductive. Economy takes time to revive and is not wholly dependent on what one particular government, even with a huge mandate, thinks or does -- fundamentals of the economy have not altered in the time between last Friday and Monday.
Among the positives that could well have powered Indian stocks, aside from the fact that Monday was an overachiever, were the global cues. US stocks made some progress on Monday, on indications that consumer spending was getting off its knees. While Dow Jones gained 2.5 per cent, S&P's 500 index climber by 3 per cent, and Nasdaq surged by 3.11 per cent. Even Nikkei was up along with Topix, Hang Seng and Straits Times.